Are investors complacent about the risks of a wider war in the Middle East?
Oil prices could spike $30 to $40 (€28 to €37.50) in the event of a months-long Iran-Israel war, warns Bank of America. High-profile figures like JPMorgan boss Jamie Dimon and billionaire Bridgewater founder Ray Dalio have repeatedly cautioned about rising geopolitical risks.
In November, geopolitics was described as the biggest tail risk in Bank of America’s monthly fund manager survey. Nevertheless, stocks have surged since then, notwithstanding recent inflation-linked slippage. Indeed, Bank of America’s April survey shows that inflation has replaced geopolitics as markets’ biggest tail risk.
Instead of questioning this relative calm, Liberum strategist and blogger Joachim Klement says investors should know the “vast majority” of geopolitical events just don’t matter for stocks.
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Klement, author of a 2021 book on geopolitics for investors, has written a brief “armed conflict investor survival guide”, which basically consists of a simple message: don’t panic. “Only if there is a lasting impact on inflation, earnings or real rates can one justify selling some stocks”, he says, but that rarely happens.
Accordingly, the “superior investor” should heed the evidence, and your “default reaction should be to buy risky assets as they sell off temporarily”.
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